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Bell v Lever Bros

[1932] AC 161

Overview

Bell and Snelling entered into agreements (separately) with Lever for five years. Susequently Lever no longer required the services of Bell and Snelling and terminated the contracts in exchange for compensation payments. Lever subsequently discovered that there were lawful grounds for terminating the contracts without paying compensation. They sought repayment of compensation on the basis that they were paid under a mistake of fact.

The majority found that there was no operative mistake.

Time to say goodbye

 

Facts

Bell and Snelling entered into agreements (separately) with Lever for five years. Susequently Lever no longer required the services of Bell and Snelling and terminated the contracts in exchange for compensation payments. Lever subsequently discovered that there were lawful grounds for terminating the contracts without paying compensation. They sought repayment of compensation on the basis that they were paid under a mistake of fact.

 

Judgment

Viscount Hailsham

Agreed with Lord Warrington of Clyffe

Lord Blanesburgh

Held there was no operative mistake.

Lord Warrington of Clyffe

There was an operative mistake.

... The real question therefore is whether the erroneous assumption on the part of both parties to the agreements that the service contracts were undeterminable except by agreement was of such a fundamental character as to constitute an underlying assumption without which the parties would not have made the contract they in fact made, or whether it was only a common error as to a material element but one not going to the root of the matter and not affecting the substance of the consideration.

With the knowledge that I am differing from the majority of your Lordships I am unable to arrive at any conclusion except that in this case the erroneous assumption was essential to the contract which without it would not have been made.

It is true that the error was not one as to the terms of the service agreements, but it was one which, having regard to the matter on which the parties were negotiating, viz., the terms on which the service agreements were to be prematurely determined and the compensation to be paid therefor, was in my opinion as fundamental to the bargain as any error one can imagine.

Lord Atkin

There was no operative mistake [emphasis added]:

... the rules of law dealing with the effect of mistake on contract appear to be established with reasonable clearness. If mistake operates at all it operates so as to negative or in some cases to nullify consent. The parties may be mistaken in the identity of the contracting parties, or in the existence of the subject matter of the contract at the date of the contract, or in the quality of the subject matter of the contract. These mistakes may be by one party, or by both, and the legal effect may depend upon the class of mistake above mentioned. Thus a mistaken belief by A that he is contracting with B, whereas in fact he is contracting with C, will negative consent where it is clear that the intention of A was to contract only with B. So the agreement of A and B to purchase a specific article is void if in fact the article had perished before the date of sale.... Corresponding to mistake as to the existence of the subject matter is mistake as to title in cases where unknown to the parties the buyer is already the owner of that which the seller purports to sell to him. The parties intended to effectuate a transfer of ownership: such a transfer is impossible: the stipulation is naturali ratione inutilis.

Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be. Of course it may appear that the parties contracted that the article should possess the quality which one or other or both mistakenly believed it to possess. But in such a case there is a contract and the inquiry is a different one. being whether the contract as to quality amounts to a condition or a warranty, a different branch of the law. ...

...

We are now in a position to apply to the facts of this case the law as to mistake so far as it has been stated. It is essential in this part of the discussion to keep in mind the finding of the jury acquitting the defendants of fraudulent misrepresentation or concealment in procuring the agreements in question. Grave injustice may be done to the defendants: and confusion introduced into the legal conclusion unless it is quite clear that in considering mistake in this case no suggestion of fraud is admissible .... The agreement which is said to be void is the agreement contained in the letter of 19th March, 1929, that Bell would retire from the Board of the Niger Co. and its subsidiaries and that in consideration of his doing so Levers would pay him as compensation for the termination of his agreements and consequent loss of office the sum of £30,000 in full satisfaction and discharge of all claims and demands of any kind against Lever Bros, the Niger Co or its subsidiaries. The agreement which as part of the contract was terminated had been broken so that it could be repudiated. Is an agreement to terminate a broken contract different in kind from an agreement to terminate an unbroken contract assuming that the breach has given the one party the right to declare the contract at an end? I feel the weight of the Plaintiffs' contention that a contract immediately determinable is a different thing from a contract for an unexpired term and that the difference in kind can be illustrated by the immense price of release from the longer contract as compared with the shorter. And I agree that an agreement to take an assignment of a lease for five years is not the same thing as to take an assignment of a lease for three years, still less a term for a few months. But on the whole I have come to the conclusion that it would be wrong to decide that an agreement to terminate a definite specified contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise. The contract released is the identical contract in both cases: and the party paying for release gets exactly what he bargains for. It seems immaterial that he could have got the same result in another way: or that if he had known the true facts he would not have entered into the bargain. A buys B's horse: he thinks the horse is sound and he pays the price of a sound horse: he would certainly not have bought the horse if he had known, as the fact is, that the horse is unsound. If B has made no representation as to soundness and has not contracted that the horse is sound, A is bound, and cannot recover back the price. A buys a picture from B: both A and B believe it to be the work of an old master and a high price is paid. It turns out to be a modern copy. A has no remedy in the absence of representation or warranty. A agrees to take on lease or to buy from B an unfurnished dwelling house. The house is in fact uninhabitable. A would never have entered into the bargain if he had known the fact. A has no remedy: and the position is the same whether B knew the facts or not, so long as he made no representation or gave no warranty. A buys a roadside garage business from B. abutting on a public thoroughfare : unknown to A. but known to B it has already been decided to construct a bye-pass road which will divert substantially the whole of the traffic from passing A's garage. Again A has no remedy. All these cases involve hardship on A and benefit B as most people would say unjustly. They can be supported on the ground that it is of paramount importance that contracts should be observed: and that if parties honestly comply with the essentials of the formation of contracts, ... they are bound: and must rely on the stipulations of the contract for protection from the effect of facts unknown to them. ...

Viscount Thankerton

There was no operative mistake.